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amending earlier rules, provide a separate charge on the growth in the value of shares in certain circumstances. FA 2003 rewrites these rules extending them to securities as opposed to just shares but also, sometimes, simplifying the rules. Some of the simplification is achieved by the addition of Chapters 3A 3D (below §16A.4) and the consequent relocation of provisions. |
Here we follow the order in the 2003 Act rather than the historical order. |
| 16A.3.1 Special Acquisitions36 |
16A.3.1.1 Chapter 2 Restricted Securities (Previously Conditional Interest in Shares) |
The legislative restrictions on the use of share options (see §16A.5 below) led to greater practical use of long-term share incentive schemes in which benefits accrued only if performance conditions attached to the options were satisfied. However, the assumption that there was no charge on the grant of such shares, but only when the conditions were satisfied and benefits received, rested, until 1998, on general principle rather than express provision. It could, contrary to the general assumption, be argued, on the basis of Abbott v Philbin, that there should be a charge on the grant of the option based on a prediction, ie a guess, as to the chance that the particular employee would derive a benefit in the fullness of time thanks to the success of the company or the stock market’s assessment of the company. If these were correct the charge based on guesswork at the time of the grant would exclude any charge when the conditions were removed. Therefore, in 1998 the Revenue moved to enact rules validating the general assumption. |
The rules to be considered apply to what were at first termed ‘conditional acquisitions of shares’; ITEPA 2003 originally changed the heading to ‘Conditional Interest in Shares’ but FA 2003 renames it ‘Restricted Securities’. In any event the securities must be employment |